Capacity market ‘not money well spent’

The capacity market is too costly for consumers and is failing to stimulate investment in the smart energy system the UK needs, according to a report by the Green Alliance think-tank.

The organisation said this December’s ‘capacity market’ auction, designed by the Government to guarantee winter power supply from energy companies, is likely to cost consumers three times as much as last year’s.

The Green Alliance said that in an effort to secure supply the government has expanded the size of the auction to ensure new large-scale gas plants (CCGTs) win contracts.

“But this will not be money well spent: it will subsidise old, inefficient plants, rather than driving investment into the flexible technologies required as the UK modernises its energy system,” said the report.

The National Infrastructure Commission concluded earlier this year that flexible energy technologies such as demand side response, energy storage and interconnection are ‘no regrets’ options, which could save consumers up to £8 billion by 2030.

Approach hindering investment

The Green Alliance argues that the way Government policy is currently designed is hindering investment in a smarter energy system.

The report says there are two problems with the current strategy:

Flexibility is undervalued - to keep the lights on, the UK’s power system needs to flex in response to changing demand and supply. But government intervention via the capacity market gives long term contracts for the amount of generation, ignoring the question of how quickly it can respond to changing conditions

Technology focus is too narrow - the government’s preference for combined cycle gas turbines (CCGTs) is distorting the market and putting a high burden on consumers.

Market remit should be expanded

The Green Alliance says that the capacity market’s remit should be expanded and that it should also differentiate based on the quality or flexibility of resources.

Amy Mount, lead author of the study, said:

“Everyone seems to like the idea of a smart energy system, but current policy isn’t very smart. It is asking consumers to pay three times more than they did last year for old, inflexible power plants which won’t match what the power system really needs.”